💵 Ever wondered how much cash your business is actually generating from its core operations? That’s where Operating Cash Flow (OCF) comes in!
While profits can look good on paper, OCF shows you the real money coming in — and it’s one of the most important indicators of a company’s financial health.
Let’s break it down step-by-step!
Table of Contents
🙋♀️ What is Operating Cash Flow?
Operating Cash Flow is the amount of cash a company generates from its normal business activities — things like selling products or providing services.
It tells you whether a business can cover its bills, reinvest, and grow — without needing outside financing.
🧮 OCF Formula
Here’s the common formula used to calculate OCF:
OCF = Net Income + Non-Cash Expenses – Changes in Working Capital
Where:
- Net Income is profit after tax
- Non-Cash Expenses include depreciation and amortization
- Changes in Working Capital reflect changes in accounts receivable, inventory, and accounts payable
🏭 Example
Let’s say your company has:
- Net Income = $40,000
- Depreciation = $10,000
- Increase in working capital = $5,000
Then:
OCF = 40,000 + 10,000 – 5,000 = $45,000
So your business generated $45,000 in real cash from operations.
📌 Why OCF Matters
- It shows how much cash your business is really making
- It helps you evaluate performance beyond accounting profit
- It’s key for investors and lenders to assess stability